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Key Economic Data 
  2003 2002 2001 Ranking(2002)
Millions of US $  406,000    
GNI per capita
 US $ 18,000
Ranking is given out of 208 nations - (data from the World Bank)

Books on Taiwan

Update No: 073 - (01/03/10)

A year for bold action

Goodbye ox; hello tiger!

For Chinese and other Asian people that follow the lunar calendar, February 14 ushered in the third year of the present cycle – the year of the tiger. Astrological predictions point to a tumultuous year ahead but with the tiger offering courage and inviting bold action and risk taking.

The lunar new year is the most important festival in the Chinese calendar and Taiwan virtually shut down for an entire week as people welcomed the year ahead. In common with those who underwent the same transformative process on December 31 last, most people could not wait to say farewell to a year fraught with uncertainty. Yes, for many people, 2009 or the “ox year”, was one that was best forgotten. Actually the celebrations continue until the Lantern Festival on February 28, the first full moon of the New Year and the official end of the holiday period.

Indeed there are some hopeful signs already evident. As we reported last month, the global economy appears to be picking up despite lingering problems in the Euro zone where a number of economies ended the previous quarter back in recession, especially Germany, Italy and Spain. Then of course, the debt crisis in Greece had repercussions throughout the union.

Fortunately Taiwan’s exposure to Europe is limited and with China once again expected to be the star performer it is no wonder that the ruling KMT party in Taiwan is seeking to bind closer ties with the mainland.

The most recent round of cross-straits talks ended on January 26. There has been an upsurge of dialogue since the KMT was returned to power last year since, unlike the DPP, the KMT has no desire to seek independence for Taiwan but looks towards the eventual reunification of Taiwan with the mainland of China. The only difference lies in timing with Beijing naturally, wanted reunification sooner rather than later, while Taiwan prefers a more cautious and less hurried approach. Nevertheless President Ma Ying-jeou has made no secret of where his sentiments are ultimately, and has taken a number of measures already to tie Taiwan closer to China and to a point where any successor DPP government would find it virtually impossible to go into reverse, without risking disastrous repercussions.

As an export-focused economy, Taiwan’s GDP shrank some 2.5 per cent last year but, with both the IMF and the World Bank predicting a return to growth in 2010, Taiwan should be already shaking off the worst of it. The official prediction from government is for a GDP rise of 4.39 per cent this year. The think-tanks are a little more optimistic with the Taiwan Institute of Economic Research forecasting the highest growth prediction at 4.81 per cent, Academia Sinica at 4.74 per cent, the Hung Hua Institute for Economic Research at 4.66 per cent and the Polaris Research Institute at 4.57 per cent. President Ma himself has come out himself and expressed publicly his goal of achieving a 4.8 per cent growth surge. With China once again leading the world, he may have reason for his optimism. His luck may be about to change for the better.

Exports are once again bouncing back, economic momentum is again building and unemployment is falling, The overall jobless rate declined further to 5.68 per cent in January. This was the lowest level of unemployment in the past 12 months. Average monthly wages contracted by 4.31 per cent year-on-year in 2009, the largest annual contraction since 1980 and a major cause of dissatisfaction with the incoming KMT administration which caught the fury of the global downturn full-on, immediately on assuming office.

The consumer price index broke an 11-month decline and rose by 0.29 per cent in January although this appears due mainly to surging crude prices which were 83 per cent above their levels one year earlier. Core inflation continues to contract and Taiwan is not out of the woods just yet.

However, this return to growth means that Mr. Ma can proceed to push an economic cooperation framework agreement (ECFA) with China with less risk than before. Indeed, while lack of transparency in these talks continues to frustrate many, the topic of the ECFA appears to have dominated the January meeting. China, of course, wants to lock Taiwan into agreement as quickly as possible. The goal now appears to have such an agreement in place by the middle of the year – probably to be agreed at the next round of talks due in May.

According to the president, a trade deal with China would help business and create 260,000 new job opportunities. While promising that he would allow neither Chinese workers nor more Chinese agricultural products into Taiwan, he promised to push for lower or no tariffs, while at the same time protecting Taiwan’s investments and intellectual property rights.

Acknowledging that there would nevertheless, be an adjustment period for some local industries as a result of the trade accord he promised a five-year NT$95 billion package to assist local companies that were adversely affected by the agreement. Overall, Mr. Ma claims that the benefits for Taiwan of doing a deal with China far outweigh the negatives and that failure to reach an agreement would damage Taiwan in the longer term – the short-term pain for longer-term gain argument.

An ECFA would, said Ma, be the first step for Taiwan towards regional economic integration – a process from which Taiwan has been locked out because of China’s antagonism. While acknowledging that China remained a hindrance to Taiwan’s efforts to sign bilateral or regional agreements, he has been very specific in stating that a major goal for Taiwan would be to use its willingness to agree to the ECFA as a basis for further bilateral agreements as a negotiating point to gain more international space, especially with regard to joining regional trade networks..

This does not appear to be entirely out of the question. China too appears to be mellowing in its approach, conscious that if it pushes too hard on political questions, there could be a backlash in Taiwan that would once again put the KMT on the defensive, and undo much of the progress that has been made in recent months – certainly considered progress, insomuch as Beijing attaining its objectives is concerned. Perhaps the most significant evidence of this was the manner in which China handled the recent announcement of US arms sales to Taiwan. While shrill in its denunciation of the United States for selling arms to Taiwan, Beijing said virtually nothing about Taiwan purchasing them.

Perhaps, for the moment we should reserve judgment. Improving global conditions have given Mr. Ma some welcome space. If he is true to his word at wanting a “Taiwan-centric approach” to dealing with China then he will have to show determination to negotiate on a basket of issues so that Taiwan too gets what it wants. China will want to link economics and politics while Taiwan will want to separate them. For an island where more than 60 per cent of its growth comes from international trade, this will be the key issue.

Like the tiger, President Ma needs to be bold and swift. He also needs the courage and determination to stand up to Beijing if need be.

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